Exhaustion of Rights: Copyright and the First Sale Doctrine

The U.S. Copyright Act grants to a copyright holder the right to reproduce, prepare derivative works, distribute copies, perform, and display a copyrighted work. These rights of the copyright holder, however, are not unlimited. One controversial issue in the news recently has involved the first sale doctrine and the extent to which copyright holders can control a copyrighted work after the first sale of the article has transpired and the copyright holder is no longer the owner of the work.

The first sale doctrine, in a general sense, stands for the proposition that once a physical copy of a copyrighted article is sold, the copyright holder cannot prevent the subsequent owner of the physical article from lending, reselling, or otherwise distributing the article, rights not granted by the Copyright Act. Although the subsequent holder is allowed the just mentioned rights, the first sale doctrine does not allow the subsequent owner to perform any of the rights granted to the copyright holder by the Copyright Act. The only time such rights transfer to the subsequent owner is when the copyright holder expressly grants such rights to the subsequent holder via a license or other such agreement. To illustrate, the purchase of a book or DVD, protected by copyright, does not convey the rights granted by the Copyright Act to the author of the book or DVD. In contrast, the purchase of a license from the author (or copyright holder) of the book or DVD transfers one or more of the rights granted under the Copyright Act to the license purchaser. The rights granted to the license purchaser can be limited in time, geography, or may only convey some of the rights under the Copyright Act mentioned above.

This doctrine has recently received attention in the media with respect to the sale of textbooks. Last fall, the United States Supreme Court agreed to decide John Wiley & Sons v. Kirtsaeng on the issue of whether the first sale doctrine applies to works made abroad because, traditionally, the first sale doctrine has only applied to copyright articles that were produced within the U.S. This case is different from the usual scenario where the student purchases a textbook in the U.S. and then resells it on a website, such as eBay or amazon.com, in an attempt to recoup some of the original costs spent on the book. In the present dispute, Kirtsaeng sold textbooks that his friends and relatives had purchased abroad at substantially lower costs than that which would occur in the U.S. Since the overhead that needed to be overcome from the low cost purchases overseas was so low, Kirtsaeng made upwards of $1 million dollars in this venture.

The pending decision by the Supreme Court could have substantial ramifications on the reselling of textbooks not just by individuals such as students but by companies as well. If the Supreme Court decides the first sale doctrine applies to all copyrighted articles whether or not produced within the U.S., mass exploitation of resale from products purchased in areas around the world where the costs to produce a product is substantially lower than that of the U.S. will occur. The outcome of the case will depend on public policy along with interpretation of the Copyright Act. It seems unlikely that if there is no support in the Act for the first sale doctrine to only apply to articles produced within the U.S. that the Court will impose such a rule, because if such a rule was stated, this would place a heavy burden on the consumer to make sure the article was produced within the U.S. before the article is resold. Otherwise, in the situation described above with students reselling their textbooks, they could potentially be infringing the copyright on the book.

Shortly after this blog was written the Supreme Court came down with their decision. The Court ruled in favor of Kirtsaeng holding the first sale doctrine covers copyrighted works lawfully made outside of the U.S. As mentioned above, the decision was based on legal interpretation of the Copyright Act as well as the dire consequences that would have occurred had the Court ruled in favor of the publisher.

If you have any questions, comments, or concerns regarding anything mentioned above, please feel free to contact Christopher Baxter at christopher.baxter@unh.edu.